An Empirical Research on the Impact of Environmentally Sensitive

Enterprises' ESG Performance on Corporate Value

Xinying Geng

Organization:School of Management, Wuhan University of Technology, 122 Luoshi Road, Wuhan, Hubei, China

Keywords: ESG Performance, Corporate Value, Fixed-Effects Model.

Abstract: This paper selects the data of 58 A-share listed power and heat companies in my country from 2015 to 2020

as a sample, and uses a fixed effect model to empirically study the relationship between ESG performance

and corporate value of environmentally sensitive companies. The results show that: ESG performance has a

significant negative impact on corporate value. The research in this paper helps to clarify the economic impact

of ESG performance of environmentally sensitive companies, and leads us to think more about how such

companies can better implement social governance practices. At the same time, it has certain reference value

for listed companies to attach importance to and improve ESG performance, and for regulatory authorities to

strengthen ESG system construction and supervision.

1 INTRODUCTION

It is theoretically believed that high-quality

information disclosure will help resolve the

information asymmetry between company managers

and external capital providers, and also help

shareholders and creditors to make reasonable

decisions, and strengthen the internal supervision of

the company's "operating process". This reduces the

uncertainty risk of the enterprise. With the progress

of society, the scope of information required by

investors is gradually expanding, and the quality of

social responsibility indicators has also become a

criterion for judging whether a company is worth

investing in. ESG performance is a value evaluation

concept that integrates the three dimensions of

environment, society and governance. It is an

extension and enrichment of the concept of green

investment and responsible investment. It is also an

important standard for the international community to

measure the level of green and sustainable

development of enterprises.

This paper takes the data of A-share electric and

thermal listed companies from 2015 to 2020 as a

sample, and empirically analyzes the impact

mechanism of each listed company's ESG

performance on its corporate value, so as to provide a

certain reference for market investors to help

investors make value investments and promote

companies to recognize the relationship between

ESG and their corporate values, so as to pay attention

to their business philosophy and their own sustainable

development.

2 THEORETICAL ANALYSIS

AND LITERATURE REVIEW

At present, some scholars have done some research

on whether there is a correlation between ESG

performance and corporate value, and they have

reached different conclusions. The question of the

relationship between ESG performance and corporate

value remains open for further discussion.

Ghoul et al. (2017) found that in areas with

imperfect market institutions, ESG performance has

a significant positive correlation with firm value. Shi

Yichen (2018) found that companies with better ESG

performance usually have higher P/B and P/E ratios.

Zhang Lin and Zhao Haitao (2019) believe that ESG

performance has a significant positive impact on

corporate value. He Linglan (2020) took my country's

A-share financial industry listed companies from

2014 to 2018 as a research sample, and empirically

tested the positive correlation between ESG and

corporate value from the dynamic perspective of the

enterprise life cycle stage. However, some scholars

have put forward different conclusions. Brammer and

460

Geng, X.

An Empirical Research on the Impact of Environmentally Sensitive Enterprises’ ESG Performance on Corporate Value.

DOI: 10.5220/0011185500003440

In Proceedings of the International Conference on Big Data Economy and Digital Management (BDEDM 2022), pages 460-465

ISBN: 978-989-758-593-7

Pav-elin (2006) found that companies with better

ESG performance have lower corporate value. Sassen

et al. (2016) examined the impact of environmental,

social and governance factors on corporate risk with

a sample of European companies, and found that

companies with better ESG performance had lower

corporate value. In addition, some scholars have

found that there is no significant relationship between

ESG performance and corporate value through

empirical research by taking listed companies in

Malaysia as a sample (Atan et al., 2018).

Different research conclusions from existing

studies may be due to differences in countries,

policies, data sources, etc., as well as differences in

ESG indicator evaluation systems adopted by

different scholars. At present, most of the foreign

studies take the developed country market as a

sample, and there are few studies on China, and the

domestic literature on the relationship between ESG

comprehensive performance and enterprise value is

relatively limited, and the peculiarities of

environmentally sensitive companies like electricity

and heat have also not been noted in previous

research. Therefore, this paper integrates corporate

environment, social responsibility and corporate

governance, and uses ESG ratings to explore the

impact of ESG performance of environmentally

sensitive listed companies on their corporate value.

3 RESEARCH DESIGN

3.1 Research Hypothesis

An enterprise is an economic organization for the

purpose of profit, and its financial status affects its

own development plan. At the same time, in order to

achieve their own long-term development,

enterprises must also fulfill their social and

environmental responsibilities. For this, enterprises

in different industries have different practices.

Chinese electric power and heat enterprises have their

own industry specificity. Under the background of

green development and sustainable development, in

order to actively undertake social responsibilities,

they need to invest more cost than ordinary industries,

and it is difficult to predict that such efforts can be

transformed into economic effects. Therefore, based

on theoretical analysis and the current economic

environment, this paper proposes the following

hypothesis: The higher ESG performance of

environmentally sensitive companies is not

conducive to the improvement of corporate value.

3.2 Sample Selection and Data Sources

This paper uses the data of A-share listed electric

power and heat companies from 2015 to 2020 as the

analysis sample, and collects the data of 83 A-share

listed electric power and heat companies for 6

consecutive years, and then excludes the listed

companies that were listed by ST during the sample

period and companies with missing financial data,

and finally obtained the effective observation value

of 58 listed companies of electric power and heat. The

data of each listed company comes from the CSMAR

database. After comprehensively considering the

reference value, this paper selects the ESG rating data

of China Securities to examine the three aspects of

environmental performance (E), social responsibility

(S) and corporate governance (G) of listed companies

in the sample.

3.3 Model Setting and Variable

Definition

3.3.1 Variable Definition

Explained Variable. Tobin's Q is the ratio of the

market value of a firm's stock to the firm's total

replacement assets. Tobin's Q = (market value of

tradable shares at the end of the year + market

value of non-tradable shares at the end of the

year + market value of net liabilities at the end

of the year) / total assets at the end of the year.

Value of non-tradable shares = net assets per

share × number of non-tradable shares. Net debt

market value = total liabilities - employee

compensation payable - taxes payable -

dividends payable - other payables - deferred tax

liabilities. This ratio reflects investors'

expectations of the company's future

profitability by estimating the company's

comprehensive capabilities in terms of operation

and profitability in the future, and is a measure

of the company's market value.

In order to verify the robustness of the impact of

ESG on corporate value,this paper selects the price-

to-book ratio of listed companies as the second

measure of corporate value (PB value = price per

share/net assets per share), and conducts robustness

tests on the regression results.

An Empirical Research on the Impact of Environmentally Sensitive Enterprises’ ESG Performance on Corporate Value

461

Table 1: Definition of Control Variables.

Variable name Variable Code Variable definition Data Source

Cash to total assets ratio cf

net cash flow from operating

activities/total assets at the end of the

year

CSMAR

Asset-liability ratio lev total liabilities/total assets CSMAR

Company growth

capability

growth

(total assets at the end of the year - total

assets at the beginning of the year)/total

assets at the beginning of the year

CSMAR

Equity concentration top3

sum of shareholding ratios of the top

three major shareholders

CSMAR

Return on equity roe net profit/average shareholders' equity CSMAR

Market capitalization cap

natural logarithm of market

capitalization

CSMAR

Table 2: Descriptive Statistics of Variables.

Variable Obs Mean Std. Dev. Min Max

lntobinq 348 0.2419 0.4419 -0.2683 3.7565

lnesg 348 1.9546 0.1783 1.0986 2.1972

lncf 348 -2.8677 0.9681 -6.0696 -0.5944

lnlev 348 -0.6514 0.5635 -4.3380 -0.0093

lnTop3 348 -0.6877 0.4516 -5.1765 -0.1207

lncap 348 23.8507 1.2934 21.5219 27.1004

growth 348 0.0899 0.2526 -0.4628 2.7891

roe 348 0.0487 0.1763 -1.8293 0.9831

Explanatory Variable. The core explanatory

variables are the ESG evaluation data of China

Securities. Huazheng ESG evaluation system is based

on the core connotation and development experience

of ESG, combined with the actual situation of the

domestic market, and builds a three-level indicator

system from top to bottom, including 3 first-level

indicators, 14 second-level indicators, and 26 third-

level indicators. and more than 130 underlying data

indicators. Compared with overseas markets, more

indicators that are in line with the current domestic

development stage have been incorporated.

Control Variables. In terms of control variables,

factors such as the company's growth ability and the

company's debt ratio will have an impact on the

company's value. This paper introduces cash to total

assets ratio (cf), asset-liability ratio (lev), company

growth capability (growth), equity concentration

(top3), return on equity (roe), and market

capitalization (cap) as control variables. The main

variable names, codes and calculation methods are

shown in Table 1.

3.3.2 Model

In order to study the impact of the ESG performance

of each listed company in the sample on the enterprise

value, according to the variable settings above, the

following measurement model is constructed as

shown in formula (1).

This model is a static panel model. Among them,

represents individual heterogeneity, and

is the

perturbation term that varies with individuals and

time. In this paper, the panel regression method is used

to study the influence of esg on tobinq. In the process

of research, in order to exclude the influence of

heteroscedasticity, this paper takes the logarithm of

some data.

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462

4 EMPIRICAL ANALYSIS

4.1 Descriptive Statistical Analysis of

Variables

As shown in Table 2, from the descriptive statistics

of the variables, the minimum value of lntobinq is -

0.2683 and the maximum value is 3.7565, indicating

that the value performance of listed companies varies

greatly among the observed values, but the difference

in the logarithm of the total market value is relatively

small. The average ESG score of all samples is about

7.06 (ln7.06≈1.9546), and the maximum value is 9

(ln9≈2.1972), indicating that the ESG performance

of the listed companies in the sample is generally

better. The average logarithm of the enterprise market

value is 23.8507, and the size of the sample

enterprises is not very different; the logarithm of the

enterprise's asset-liability ratio is -0.6514, and the

logarithm of the ratio of cash to total assets is -2.8677.

The maximum growth rate of enterprises is 278.91%,

and the minimum value is -46.28%. The growth

ability of different enterprises varies greatly.

4.2 Correlation Analysis

In order to test the scientificity and rationality of

variable selection, correlation analysis was carried

out on the variables. From Table 3, it can be seen that

there is a negative correlation between lntobinq and

lnesg; the higher the asset-liability ratio, that is, the

higher the financial risk faced by the enterprise, will

significantly reduce the enterprise value. The results

of correlation analysis between variables show that

the variables selected in this paper are appropriate.

4.3 Regression Analysis

Using stata15 for panel regression, a random-effects

model and a fixed-effects model were established, as

shown in Table 4. The Hausman test was carried out,

and the test results were as follows: the test statistic

was 69.75, and the corresponding p value was 0.000,

which was less than 0.05. Therefore, the fixed effect

model was used for regression analysis in this paper.

It can be seen from the fixed effect model in Table

4 that esg is significant at the significance level of

0.05, indicating that esg has an impact on tobinq.

Since the coefficient of lnesg is less than 0, esg has a

negative impact on tobinq. It can be seen from the

model that esg increases by 1%, and tobinq decreases

by 0.2855%.

01 1223 34 45 56 677

ln ln ln ln ln op3 ln growth

it t t t t t t t it

tobinq esg cf lev T cap roe

ββ β β β β β β

=+ + + + + + + +

(1)

Table 3: Correlation Analysis.

lntobinq lnesg lncf lnlev growth lnTop3 lncap

lntobinq 1

lnesg -0.266*** 1

lncf 0.283*** -0.047 1

lnlev -0.347*** 0.208*** -0.241*** 1

growth 0.091* 0.018 0.296*** 0.019 1

lnTop3 -0.413*** 0.354*** -0.051 0.328*** -0.033 1

lncap -0.416*** 0.408*** -0.342*** 0.272*** -0.057 0.423*** 1

roe -0.071 0.157*** 0.095* -0.112** 0.139*** 0.188*** 0.175***

Table 4: Panel Regression.

(1) (2) （3）

VARIABLES Re Fe Robust_ Test

lnpb

lnesg -0.2875** -0.2855** -0.5715**

(-2.129) (-2.135) (-2.013)

lncf 0.1141*** 0.0988*** 0.1951***

(4.412) (3.798) (3.535)

lnlev -0.2229*** -0.3495*** 0.1648

(-4.046) (-4.910) (1.091)

lnTop3 -0.4250*** -0.4815*** -0.2300

(-6.309) (-5.600) (-1.260)

An Empirical Research on the Impact of Environmentally Sensitive Enterprises’ ESG Performance on Corporate Value

463

lncap 0.1043*** 0.4878*** 0.3507***

(3.261) (9.121) (3.089)

growth -0.1040* -0.1765*** -0.0267

(-1.718) (-3.167) (-0.226)

roe -0.1045 -0.1617** -0.9641***

(-1.172) (-1.974) (-5.544)

Constant -1.7803** -11.0859*** -6.2133**

(-2.280) (-8.586) (-2.267)

Observations 348 348 348

R-squared 0.333 0.161

Number of id1 58 58 58

*** p<0.01, ** p<0.05, * p<0.1

4.4 Robustness Test

In order to further verify the reliability of the research

results and examine the stability of the model, this

paper conducts the following robustness test: use the

price-to-book ratio (PB value) instead of tobinq to

test the model. The results of regression using the

fixed effects model are shown in the last column

Robust_Test (robustness test model) in Table 4. It can

be seen from the test results that the original model is

robust, and ESG still has a significant negative impact

on enterprise value, indicating that the ESG

performance of environmentally sensitive companies

is different from other industries, and further

attention needs to be paid.

5 CONCLUSIONS

We hope This paper takes 58 A-share listed electric

and thermal power companies from 2015 to 2020 as

a sample to empirically test the impact of ESG

performance of environmentally sensitive listed

companies on corporate value. The study found that

ESG performance is negatively correlated with

corporate value, which is different from the current

mainstream views. The reason may be that as green

development and sustainable development gradually

become the mainstream of social development, the

state has imposed stricter environmental regulations

on high-polluting companies. In this context, such

enterprises carry out business transformation and

upgrading, and actively undertake social

responsibilities. On the one hand, they have invested

more costs than ordinary industries, and on the other

hand, stakeholders such as the public and society are

not sensitive to the positive signals of such industries,

so it is difficult to convert ESG impact effects into

economic effects. Based on the research conclusions,

this paper puts forward the following suggestions:

Enterprises should dialectically look at ESG

performance when carrying out social governance

practices, especially environmentally sensitive

enterprises should carefully analyze their ESG scores,

think deeply about how to better assume social

responsibilities and strive to improve themselves The

government and other regulatory authorities should

strengthen the supervision of the quality of ESG

information disclosure, and it is necessary to build a

complete ESG indicator system to regulate and guide.

However, the research method of this paper cannot

fully control other potential biases, and further

research is needed on the relationship between

corporate social governance practices and corporate

value.

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